U.S. Lodging Industry Capital Expenditures Increase to a Record Level In 2013

TREND ANALYSIS REPORT
August 21, 2013

By Bjorn Hanson, Ph.D., Divisional Dean
Preston Robert Tisch Center for Hospitality, Tourism, and Sports Management
NYU School of Continuing and Professional Studies (NYU-SCPS)

Capital expenditures (“cap ex”) for U.S. hotels are forecast to exceed the prior record level spent in 2008. The forecast for 2013 capital expenditures is approximately $5.6 billion.

The increase in 2013 is 107.4 percent over 2010’s $2.7 billion. There were decreases of 40 percent in 2009 and an additional 18 percent decline in 2010 in response to decreasing occupancy, ADR, RevPAR, and profits in 2009.

The expenditures in 2013 reflect deferred items and meeting new brand standards, and although industry performance has improved (occupancy will return to close to 2007 levels, and ADR will finally exceed to the prior peak of approximately $107.50 in 2008), these amounts are a challenge for many owners: profits per room in 2012 were 6.6 percent below 2007 levels, based on STR industry profit and supply data.

Although total 2013 U.S. industry capital expenditures will be at a record level, the nominal amount per available room will be slightly less (approximately 3 percent) than in 2008.

Capital expenditures include improved guest amenities and services such as:

Guest room design including work spaces, radio alarm clocks and sound systems (many are MP3 compatible), seating, bathrooms, and lighting

Beds and bedding

Flat screen televisions

Added or enhanced technology for meeting rooms and ballrooms

In-room amenities including irons/ironing boards and coffee makers

Reconcepted restaurants

Added or enhanced fitness facilities

Unique to this recent cycle has been that many brands and management companies waived many new and existing requirements involving capital expenditures to help owners through this period of decreased financial performance. This flexibility has changed, and brands and management companies are now requiring these improvements to maintain quality and brand.

In addition to brand and management company influence, social media postings are resulting in additional capital expenditures as owners respond to criticisms and unfavorable comments.

The forecast increase in capital expenditure spending for 2013 reflects several factors including that occupancy will be at its highest level since 2007 and average daily rate will increase to a nominal record level. Industry profits are also expected to increase by 10 to 15 percent in 2013 to a new record level.

Below is a summary of estimated U.S. lodging industry capital expenditures by year:

Year

Amount (in billions)

2013

$5.6 (forecast)

2012

5.1

2011

3.75

2010

2.7

2009

3.3

2008

5.5

2007

5.3

2006

5.0

2005

4.8

These estimates are based on interviews with selected hotel executives (including brand and management company representatives) and design and construction executives, an analysis of brand standards, and other sources including press releases and media reports.

EDITORS: To interview Dr. Bjorn Hanson about this research or for more information, please contact Cheryl Feliciano at cheryl.feliciano@nyu.edu or 212-992-9103 or Suzanne Dawson at sdawson@lakpr.com or 212-329-1420.

About the Author
Bjorn Hanson, Ph.D., is divisional dean of the NYU-SCPS Preston Robert Tisch Center for Hospitality, Tourism, and Sports Management. He is a hospitality and travel researcher, widely respected for his industry forecasts and for having created econometric models that transformed business analysis in the field. Prior to joining NYU-SCPS, he held the position of global industry leader, hospitality and leisure, at PricewaterhouseCoopers LLP.

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